Are You Swimming in a Blue Ocean or Treading in a Very Crowded Red Ocean?

Monthly insights on entrepreneurship and leadership by serial entrepreneur and The Decision Series author Randy H. Nelson

Each month in this column I ask a different question to you, the ExitEvent Entrepreneur. Thought provoking questions that are meant to get you to sit back and think. Each month I offer insight into the question, along with common mistakes made by (us) entrepreneurs, and a key take-away for you to think more about. My goal – to increase your self-awareness as an entrepreneur and a leader.

Insight:W. Chan Kim and Renee Mauborgne wrote the book titled Blue Ocean Strategy. Essentially, entrepreneurs have two choices. We can either swim for open waters in a blue ocean creating new, fresh ideas and business plans, while leading the space we compete in and leaving behind the few competitors we might have. Or, we can spend our time swimming with the sharks in the red ocean, where the price wars are fought and commoditization becomes the norm.

For many entrepreneurs, the clear goal is to start out with something entirely new—our very own blue ocean that we claim all to ourselves. Others create new solutions to present to the marketplace, solutions that are superior to what currently exists and are differentiated to what else is offered in the marketplace. We create value for our customers.

Common Mistake made: In my last column, I illustrated that every business is going to have difficult times during its lifetime. Even the fastest growing privately-held companies that make the Inc. 5000 list each year struggle. In a study conducted by The Kauffman Foundation and Inc., researchers found that five to eight years after making this illustrious list, about two-thirds of the companies had shrunk in size, gone out of business or were disadvantageously sold.

There are many reasons for this. But competition is clearly going to be a factor for any company, and failing to make the proper changes in your business as it grows could be catastrophic. In the case of the crowded red ocean, the competition is swarming in the very same waters that you are barely treading water in.

The mistakes many businesses make are entering a red ocean purposely (or inadvertently as a new business), or being late to recognize where they are swimming until it is too late to survive.

Key Take-away:Most businesses run the risk of being commoditized at some point. It might be in one of the divisions that you run, or with one of the better selling products that you sell. Price pressure will arrive, especially from competition that runs operationally excellent businesses with a lower cost structure, or from desperate competitors willing to “buy the business”. Unless you dominate your industry with high market share, price pressure always arrives. That’s especially true in today’s internet age where we can price shop for just about everything, instantaneously.

Entrepreneurs do what we do for many different reasons. Among them are our desire for autonomy, our desire to make a difference in the world and our desire to leave a legacy. In order to do any of the three just mentioned, we have to be able to thrive in the long-term, and that means having the ability to continue to reinvent our companies and ourselves as entrepreneurs and leaders. It means that we need to swim toward open blue waters for our businesses to thrive.

So what does this mean? To you?

Understand fully the waters you are considering heading towards. Are you really alone, and is there truly significant opportunity in the blue ocean that you have created? Or, are you attempting to out-maneuver a crowded field all fighting for the same target? Are your competitors willing to do whatever is necessary to ensure their own survival first, at your expense?

Market testing is critical. Listen to your customers. Entrepreneurs come up with thousands of great products, solutions and services, but if customers won’t buy them to start with, or they won’t pay the price you want to sell them for, then the red ocean will come calling for you sooner or later. Find the open blue waters where customer need is met and you have the very best product, service or solution!

Change is a given. Once you find your own blue ocean, it is just a matter of time before competition shows up and attempts to turn it into a red ocean. Don’t let them. Lead the industry with innovation. Live and lead in blue oceans.

Randy H. Nelson is an NC-based serial entrepreneur who founded and sold Orion International and NSTAR Global Services and now serves as an executive coach and mentor, leadership expert and published author of the Amazon #1 international best-seller The Second Decision: The Qualified Entrepreneur.